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TCS Q4FY21 Preview | Earnings expected to beat peers; deal wins key

TCS Q4FY21 Preview | Earnings expected to beat peers; deal wins key
April 12
15:31 2021

Brokerages also expect healthy growth in margin amid operational efficiencies and strong revenue growth, while growth in profit could be around 8-10 percent on a sequential basis.

Representative image

Representative image

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IT services major Tata Consultancy Services is expected to report robust and best earnings growth among peers in the quarter ended March 2021, driven by cross currency tailwind, recovery in demand, ramp up of large deals and strong demand in cloud adoption, brokerages feel.

TCS share price rallied 11 percent during January-March quarter and spiked 74 percent in the full year FY21, against 6.6 percent and 102 percent gains registered by Nifty IT index in same periods.

The country’s second largest listed company by market capitalisation is likely to report more than 4 percent growth in constant currency revenue and 5 percent growth in dollar terms in Q4FY21 compared to Q3FY21.

“Migration to cloud, recovery in demand (impacted due to COVID-19) and cross currency benefits are expected to positively impact Q4FY21 revenues,” said ICICI Direct.

According to the brokerage, TCS is expected to register 4.2 percent QoQ growth in constant currency led by anticipated improvement in demand from BFSI, healthcare and retail, acceleration in digital technologies and ramp up of deals.

“Further, cross currency tailwind would lead to revenue growth of 5.0 percent QoQ in dollar terms. In rupee terms, revenue is expected to increase 3.9 percent QoQ (lower than dollar growth due to rupee appreciation),” said the brokerage.

Prabhudas Lilladher also expects robust growth of 4.3 percent in constant currency for TCS given the strong ramp-up of large deals signed, robust demand in cloud adoption, and strong tailwinds of large transformational digital deals.

The key thing to watch out for would be deal wins in the March quarter. The total contract value of deal wins of last quarter was robust at $ 6.8 billion, which did not include the Postbank deal that closed in January 2021.

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Brokerages also expect healthy growth in margin amid operational efficiencies and strong revenue growth, while profit growth could be around 8-10 percent on a sequential basis.

“EBIT margin is expected to improve 186 bps led by the absence of wage hike and operational efficiencies,” said ICICI Direct.

TCS did wage hike last quarter & 160bps impact was seen. “In this quarter there are no headwinds for TCS margins. We expect strong margin performance by TCS supported by revenue growth tailwinds,” said Prabhudas Lilladher.

Other key things to watch out for would be trends in client budget; growth in digital technologies; deal pipeline; long term trends in IT; demand trend across verticals; execution time of large deals; update on pricing; and supply-side issues, hiring trends, wage hikes & its impact on margins ahead.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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